BETA
This is a BETA experience. You may opt-out by clicking here

More From Forbes

Edit Story

How To Start Your Child On An Allowance Program

Following
This article is more than 5 years old.

Ah, the great allowance debate. This has become a hot topic over recent years, and for good reason. It's one of the most impactful ways to teach children about money. It's also the first exposures our children have to earning money, and can shape their attitudes around money. So it's understandable that this has become a focus of interest and debate. We are passionate about our kids and want to make sure we are doing what's best for them. And let's be honest...every parent is terrified that they are going to make that ONE mistake that will wreck our children for life! When it comes to allowance, if we pay our child to do chores, will they turn into entitled beasts? If we pay kids an allowance that’s not tied to chores, will they become even more entitled by thinking they get money for free? What is a parent to do?

First, don’t beat yourself up on this one. No matter what anyone says, there is no confirmed “right” way to give an allowance. It depends on the child, on the family’s financials, and on your personal beliefs. As long as you aren’t forcing 40 hour work weeks on your child, or paying six figure allowances...you’re probably not causing irreparable harm.

The below comparison is from my upcoming book, Beyond Piggy Banks and Lemonade Stands: How to Teach Young Kids about Finance. There are two general schools of thought on allowance structure, both supported by financial professionals.

  1. Chore-based allowance: It’s simple, your child does chores, they get paid. Not doing chores means no mula. There are several positives to this approach. Your child learns early that they need to work to make money. It helps them make choices and learn consequences. For example, if they choose not to do the dishes, they don’t get the money needed to buy a new toy. However, there are several negatives to this approach. It teaches children that they don’t have to do chores; that chores are a choice. It can be seen as rewarded your child for doing things they should be doing anyway: making their beds, putting away their dishes and cleaning up after themselves. This then leads to the question of deciding what do you pay them for? Do you pay them for putting their dirty socks in the laundry? What about helping dad rake the leaves? How will you answer when they say, “I’ll only do it if you pay me”? Or, what if your child decides that they don’t need money this week, so they refuse to do any chores? While the chore-based allowance has obvious value, there's a lot of gray area that is not addressed and it’s not always realistic for the real world.
  2. Pure allowance. Children get an allowance each week, no matter what. Separately, they are expected to do their chores and help around the house because they are part of the family. There is no link to allowance and work. What works well in this scenario is that no matter what, your child will have money. This is important, because your child will be able gain first hand experience with real money. Another benefit is they learn that chores are something they are expected to do because they are part of the family and it’s their responsibility...not because they will get money. Critics of this approach believe that you could be in danger of raising entitled children who believe that money will just be handed to them, and they won’t learn the value of hard work.

The hybrid approach to allowance

If you are like most parents and not sure which to choose, there is a third option. A hybrid approach provides the best of both worlds. Give your child a set amount of money each week as allowance. This should not be tied to any chore or job. Make it clear to them that as part of the family, they are expected to do certain daily chores like make their bed, put up their dishes, and clean up their toys. Tell your child if they want to earn additional money, they can do other jobs around the house. These should be different from the daily chores they are expected to do. Examples are washing windows, giving the dog a bath, washing your car or raking the leaves.

The hybrid approach gives parents a real world, enforceable way to give their children allowance. It removes the gray areas, sets clear expectations and gives their child real money to learn from. When you are ready to start an allowance program with your child, be as clear as possible. “Josh, because you are getting older and and there are things that you want to buy, I’m going to start giving you an allowance. That means each week we will give you $6, which you will divide into your three piggy banks." I'm a big fan of the Save, Spend & Share piggy bank system. It's up to you how to divide the money among the three; for simplicity I usually just divide it equally.

 Allowance rules:

Regardless of the allowance method you use, keep the below in mind:

  • What’s the amount? How much money should you give your child? This is the million dollar question. A 2018 survey from allowance tracker RoosterMoney found that the average kid between ages 4-14 takes home around $8.43 a week, with the amount increasing as they got older. How much they get is up to the parents and depends on their personal financial situation. A solid rule of thumb is $1 for each year. So, your five-year-old gets $5/week, at six years old they get $6/week, and so on.
  • Be consistent. If you are planning to give your child a set amount of money each week, make sure you give it to them.
  • Establish boundaries on what they are expected to buy with their own money, and what you will pay for.
  • Cash is king. Always give them allowance in cash and coins. It's easier to teach your child about money if they are working with the tangible kind. Also, children should be able to see their money physically grow in a piggy bank.
  • Allowance should be positive. Don’t use allowance as a punishment. If your child misbehaves, don’t tell them that you’ll take away their money that week. Allowance is most children’s first hands-on experience with money; you don’t want it to cause them anxiety. Besides, there are plenty of other ways to punish your child by taking away privileges, electronics and toys.
Follow me on Twitter or LinkedInCheck out my website or some of my other work here